The California Budget Impasse: Political Chicanery or Democracy in Action?

This situation is made even more tenuous by the political and socioeconomic changes that have taken place in California over the past three decades. During that time Californians have placed on the ballot and passed many initiatives (Propositions) which have impacted, by varying degrees, how business is done in California. The first major change took place with the passage of Proposition 13 (1978), which limited taxes on real estate.

I know many of you are tried of hearing about Prop 13 and I can’t blame you. Prop 13, like most changes had some good points, but like most changes it also had some negative ones. Prop 13’s most significant impact was that it transferred the funding of K-14 education from the local property tax to the State. Before Prop 13 more than 65% of K-14 funding came from the local property tax, which had been the most consistent and steadily rising source of income for schools. After prop 13 schools had to look to the state’s limited budget for 65% or more of its funding.

The second major impact from Prop 13 was the gap it created in funding for local government (cities, counties and special districts). In response, the state bailed out local governments with state funds in 1978 because the state had a surplus. To refresh your memory, Prop 13 was directed at local governments. Homeowners were frustrated with rising property taxes primarily because of run away inflation in assessed value on their homes, but also because service rates were going up. This caused a double hit to most homeowners. Every year up until 1992 the state continued to augment local government funding

The only reason I mention this brief history to you is to remind everyone that Prop 13 made a double hit on the State’s already challenged budget; again during my sixteen years in the legislature only during three of them did we have a surplus the rest had large deficits.

There are a couple of other issues raised by Prop 13 relating to equity, i.e., who should pay and how much, but these issues have no direct bearing on the budget process per se and are for another discussion.

There were many other initiatives, which were passed by the citizens of this state and which also impacted the State Budget. Prop 4, the Gann Limit initiative, requires that if the state has more money than the formula provides it must be returned to the taxpayers. This is required regardless of the state’s projected future needs due to population growth or economic uncertainty; needs such as building schools, universities, community colleges, hospitals, water projects, roads, environmental mitigation, prisons, health care plus dozens of other projects that need state funding.

Prop 98, required that 41% of an already over stressed budget must go to K-14 education, creating a supposed floor for education funding to meet the constitutional guarantee that education will be the funding priority of the state. The simple fact is that Prop 98 became a ceiling that has inhibited the growth of education funding.

There have been many other changes as well, some dealt with reducing taxes or fees (the recent reduction of the vehicle license fee took $4.2 billion dollars out of the budget in 2005 and every year since), others with structural and oversight demands made upon the state budget and we aren’t even mentioning potential law suits, parks and recreation and the need to meet federal matches which are required for some programs (e.g., Medicare). Cumulatively all of this has reduced funds available to state government by about $40 to $50 billion per year. One final thought before we continue, because of the many propositions and the restrictions or demands that have been made upon this years state’s $130 plus billion budget, the legislature and Governor only have discretion over 11 or 12% of the State’s budget, the rest is all dedicated..

In looking at this year’s budget impasse, it is important to consider the responsibilities government has taken on over the years and the public’s expectations about those responsibilities. What do you the public expect of government and which governmental entity is expected to carry out what part of that role? I mention this question because it is as integral a part of the budget process as the structural and monetary considerations which were discussed above.

Up and until the early 1930’s, government offered few if any services to its citizens. For example, government was not concerned with who died, how they died or whether the death was work related. People generally expected businesses and employers to be responsible for their employees. However, with the advent of the Great Depression and the 1929 financial crash of this nations financial institutions closing their doors and businesses collapsing, government was forced to involve itself in almost every aspect of modern American life.

A multitude of events have changed the role of government and Americans expectations about government, beginning with Franklin Roosevelt’s New Deal policies and the involvement of the United States in World War’s I & II, Korea, Vietnam and now Iraq. Government has become a provider of a multitude of services: a negotiator, a prosecutor, a policeman of the world and yes, the place of last resort for curing some of this nation’s social ill.

Over some eighty years legislators have struggled hand in hand with various constituencies to create assistance for those who are in the greatest need. With each new crisis, none of which could have been anticipated by the founders of this country, government attempted to fill a vacuum. Please note that the main reason government began to involve itself so extensively in our everyday lives was the result of the private sector becoming unable or unwilling to provide solutions to the mounting problems which accompanied America’s transition into becoming the leading industrial nation of the world and California being the sixth largest economy in the world was likewise affected.

Questions had to be answered; who was responsible for: the safety and well being of the worker, the protection of the consumer, the damaged environment, providing health care of all of its citizens and who would mediate between all of these competing factions? More and more our citizens were demanding solutions to these many problems and as their demands increased more individuals were drawn into politics; these newly elected officials caused roads, universities and water projects to be built. They bought land to protect the State’s flora and fauna. They involved themselves in research for medicine, hygiene and agriculture. All of a sudden, after some eighty years, government had become the largest employer, an employer whose only function was to work for the common good of all Californians (I know some times we wonder about this); Californians look to its government for solutions to its problems as does the rest of the nation and the world.

Like yourselves, Government representatives are only human beings and come from backgrounds as varied as those of you who are reading this article. They spend much time debating and trying to find ways to do the best job with the limited resources at their disposal. They attempt to balance the requests which come in asking not to cut funding for libraries, schools, universities, health care for the elderly and the poor, or to build more public hospitals, more prisons, more universities and more roads, the list goes on an on; and we haven’t even mentioned major disasters (earthquakes, fires floods etc.).

The Legislature, unlike the executive branch (Governor), does not have the luxury of preparing a budget in private with its own department of finance and other state agencies (Thank goodness). The legislature must have open public hearings. These hearings begin shortly after the Governor releases his proposed budget, usually around the middle of January, and in a normal year continue until the end of May.

During these public hearings the public, state agencies and other organizations are invited to contribute their ideas on the budget. The Senate and Assembly Budget Committees deliberate between their various proposals, which range from the very liberal to the very conservative and come up with compromise solutions; most of the time the Assembly and Senate can agree on what should be cut or added. However, it must be emphasized that quite often there are major disagreements on how something should be done or what should be cut or added.

You have been given some brief comments about what has happened to bring us to this place in our history where government appears to be unable to do one of its most important functions, balance a budget by a constitutional deadline. There are probably as many and as varied solutions to this problem as there are individual’s perspectives in the state Capitol, universities, board rooms and living rooms. The following are only a few ideas about how we might reform the system:

1.) Restructure the way we finance government and redefine the responsibilities between the various layers of government. For example, I firmly believe that the funding of K-14 education should revert to the local property tax. Property taxes are one of the most stable sources of revenue. Education is a priority for the state and makes up the single largest part of the budget. By linking up these two we could guarantee greater per pupil funding.

2.) The citizens need to pass an initiative that requires a simple majority vote to pass a budget. California is only one of three states that require a two thirds majority to pass a budget. This effectively gives a minority of the legislature (one third) the inordinate ability to stymie the entire budget process. If this had been in place you would have had a budget on time every year. There are enough safeguards between the executive and legislative branches to undo any potential harm to a minority party that some feel would occur. Besides almost all legislation requiring funding needs a two thirds vote.

There are essentially two powers that guide the budget process, the Governor’s line item veto,which allows the Governor to take out anything he or she wishes and the Legislature’s ability to remove anything they want from the Governor’s budget and once removed can’t be restored by the Governor; thus setting the stage to negotiate between what the Governor wants to remain in the budget and what the Legislature doesn’t want blue penciled. Most past good Governor’s have said,“just send me a budget, I will take out what I don’t want.” The way it is now the debate remains with the legislature.

I guess what all of this means is that while it is important to get a budget passed on time it is equally important to make sure that it is fair and just budget, bringing the least amount of harm to our state’s citizens, many of whom rely totally on government for fair treatment. I hope this piece will help to give you some insight into the budget process that, while certainly important, is only one aspect in the overall process of government.

Robert J. Campbell, known to many as Bob Campbell, served in the California State Assembly from 1981 through 1996, representing Contra Costa County, and was a member of the committees on education, higher education, and ways and means. He is the principal of Campbell-Governmental Access and represents clients in education.